Backseats Of Taxis Turn Into Battlefield

The Taxi and Limousine Commission just wanted to see if a lauded West Coast start-up could build a cheaper unit for processing credit cards in New York taxicabs. Now the agency has a war on its hands.

Representatives for the two companies that currently provide credit-card machines in taxis will ask the commission Thursday for a chance to participate in a pilot program that could bring a variety of new bells and whistles to the backseat of the nearest yellow cab—from a tablet computer to, potentially, a console that will sell riders a lottery ticket.

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A taxi passenger ignores the television advertisements during a ride through the Lower East Side of Manhattan.
Mustafah Abdulaziz for The Wall Street Journal

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Originally, the test run was supposed to include just Square, a San Francisco-based company that sought to run a pilot program in 50 cabs of its proposed credit-card processing system. A new gadget like a tablet computer would give passengers the ability to pay for the ride before it ends and also lower credit-card processing fees for drivers, who have to cover those costs.

But after pressure from the existing vendors, Creative Mobile Technologies and Verifone, the TLC shifted gears and is soliciting their proposals. The suitors will compete in equal numbers: Each pilot proposal, if approved by the commission, will run in 30 yellow cabs.

Neither Verifone nor CMT provided details of the new services they might offer, and their proposals weren't expected to be completed for weeks. But there was a strong hint in the timing of a Verifone corporate announcement on Wednesday: The company, with a partner, is working to offer mobile lottery ticket sales in five states from a variety of locations, including taxicabs and TV screens on gas station pumps.

The company is hoping to expand the offering nationwide, and an executive didn't rule out New York.

"It is clear that the states and municipalities see an opportunity to reach people that might not ordinarily be buying lottery tickets," Bud Waller, Verifone's vice chairman, said in an interview. "If I got in the back of a taxi cab in New York and I could buy a lottery ticket, I'd probably do it."

A spokesman for the New York Lottery didn't return a call for comment.

"We're really looking forward to seeing some very innovative alternate payment solutions," Taxi Commissioner David Yassky said in a statement.

Credit cards have helped swell overall revenues for the taxi industry but also raised tensions between fleet owners and the drivers who lease their cabs. Fleets may withhold 5% of the credit-card fares from each driver after a shift, enough to cover the 3.5% processing fee paid to CMT and Verifone and an additional 1.5% that fleet owners can claim to cover their own bookkeeping costs.

As the share of fares paid by credit cards has grown, and with it the total cost to drivers, they have clamored for a lower-cost option.

"We can't wait to see the duopoly be broken," said Bhairavi Desai, executive director of the New York Taxi Workers Alliance. "The TLC should just pass regulation to bring down the 5%. A pilot program won't be enough."

In an interview, Mr. Waller suggested that the appeal of Square's lower-cost processing proposal would fade once the new competitor faced the costs and regulatory requirements that the current credit vendors now shoulder in order to operate in taxis.

Those include the cost of installing terminals, complying with robust security requirements, and managing some tax withholdings, as his company now does. "We could all charge lower rates if we didn't have to provide all those other services," Mr. Waller said. "I will tell you that I think those other services are very, very important."

In an email statement, a Square spokesman disputed the suggestion that its technology is unsecured, saying it is compliant with industry standards. Taxi drivers already using Square for payment in other cities have found it "a more simple, cost-effective way to get paid for their work," he said.

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